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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the Wyndham Worldwide Fourth Quarter and Full Year 2017 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time.
I will now turn the call over to Margo Happer, Senior Vice President of Investor Relations. Please go ahead, ma'am.
Good morning. Thank you for joining us. With me today are Steve Holmes, our CEO; David Wyshner, our CFO; Geoff Ballotti, CEO of Wyndham Hotel Group; and Mike Brown, CEO of Wyndham Vacation Ownership.
Before we get started, I want to remind you that our remarks today contain forward-looking statements. These statements are subject to risk factors that may cause our actual results to differ materially from those expressed or implied. These factors are discussed in detail in our Form 10-K filed February 17, 2017, with the SEC and our subsequent 10-Q.
We will also be referring to a number of non-GAAP measures. Corresponding GAAP measures and the reconciliation of these non-GAAP measure to GAAP are provided in the press release and tables to the press release, which are available on the Investor Relations section of our website at wyndhamworldwide.com. Steve?
Thanks, Margo. Good morning, and thank you for joining us today. I will start with an update on recent developments and then highlight some of the year's most significant accomplishments. David will provide additional detail on our results and discuss our expectations for 2018. For sake of efficiency, David and I will deliver the prepared remarks, but Geoff, Mike, David and I will all respond to your questions. Hopefully, not simultaneously. Since our last call, we delivered fourth quarter results that were stronger than we had projected and were driven by year-over-year growth in each of our 3 operating segments. We agreed to acquire the La Quinta Hotel brand franchise system and hotel management business. This nearly 4 -- this nearly $2 billion acquisition will significantly enhance our presence in the midscale and upper midscale segments of the hotel industry and will make us one of the largest hotel management companies in the United States with over 400 hotels under management, all while maintaining our asset-light business model.
We continue to explore strategic options for our European rental business and remain optimistic about the process. We have received considerable interest in the business from potential buyers and we are responding to that interest. We look forward to updating you when we have something more definitive to say. We continue to return cash to shareholders, repurchasing $150 million of stock in the fourth quarter. We announced that we are increasing our dividend by 14% to $0.66 per quarter or $2.64 annually. And we made outstanding progress on our plan to separate into 2 independent publicly-traded companies, with the spin-off of the hotel business still on track for completion in the second quarter of this year. It has been one of the busiest times in our history and it has been invigorating to be firing on all cylinders to deliver value for our shareholders. Let me discuss these developments in a bit more detail. We started the fourth quarter helping our guests, associates and businesses recover from 3 devastating hurricanes as well as earthquakes and wildfires. We were cautious about the impact these events would have on our fourth quarter results. While the financial effects on our business has ended up being roughly in line with our expectations, our teams responded in great ways to help guests and associates recover. A wonderful example of this is our team at the Wyndham Rio Mar in Puerto Rico. They have replaced 7,000 pieces of water-damaged drywall, housed nearly 600 relief workers beginning less than a week after the storm, positioned the property to be the first Puerto Rican resort to reopen to guests, which it did last week, and accomplished all of this while operating on generator power for 4 months. As a result of that -- of these efforts such as these throughout our organizations and over performance in areas unaffected by the hurricanes, we delivered adjusted EBITDA that was close to $10 million above the midpoint of the range we shared with you in October. Last month, we announced that we had agreed to acquire the franchise and management operations of La Quinta. This is a compelling transaction on many fronts. With La Quinta, our Hotel Group will span 21 brands and over 9,000 hotels across more than 75 countries. The addition of La Quinta to our portfolio will build upon our strong midscale presence, expand our reach further into the fast-growing upper midscale segment and position us to be the preferred partner and accommodations provider of developers and guests. In addition, we expect to generate synergies of $55 million to $70 million as we integrate our business and theirs, primarily through the elimination of duplicative costs. Therefore, the acquisition is not only a strong strategic fit, but also is highly accretive and will enhance growth and shareholder value for years to come. We expect to close the transaction in the second quarter. As I mentioned, we remain committed to returning cash to shareholders with share repurchases in Q4 that brought our full year buyback totals to over $600 million or 6% of shares outstanding. We also -- we're also increasing our quarterly dividend to reflect the strength of our business and our ongoing commitment to return cash to shareholders. And at the same time, we're also cognizant of the cost of the La Quinta acquisition and our separation costs. Net of any proceeds from European Vacation Rental sales, that will all increase our debt. In that context, we may modulate our pre-spin share repurchases somewhat in order to earmark a portion of our free cash flow for debt reduction. Importantly, our separation process has been progressing very well. We filed the initial confidential draft to our Form 10 in November, received SEC comments in December and have already filed an amendment responding to those comments. We have drafted most of the separation-related documents and have been working with banks to establish the capital availability we want our businesses to have post-spin. We expect to make the Form 10 for the Hotel Group publicly available next month and our plan is to give more information on both companies' go-forward earnings and capital structures at that time. We expect to hold roadshows for both companies in May with distribution of the hotel company's stock soon thereafter. The board and I are proud of the progress we've made, and we remain enthusiastic about both the near and long-term prospects for each of these soon-to-be independent businesses. We're already seeing great evidence of how the separation will better enable each company to concentrate on growing its core business and facilitate efficient future capital raising, while generating value for shareholders. At the same time, we believe the 2 businesses will continue to benefit from the many Blue Thread initiatives among our operations, including the Wyndham Rewards program. The last few months have been extraordinarily busy even for us and I couldn't be prouder of how our associates have tackled all the additional work and the additional uncertainty associated with our strategic transactions. I also don't want our strategic transactions to overshadow the excellent work our teams have been doing in the ordinary course to build our brands, grow our businesses and position us for future success. Therefore, I'd like to review some of our principal accomplishments over the last year, starting with the Wyndham Hotel Group. Geoff's clearly articulated, 3 areas of focus: Quality, technology and loyalty continue to drive our actions throughout 2017. Our hotel company has grown to have more affiliated hotels than any other organization in the world with an exceptionally strong footprint and significant opportunity for continued growth. Our brands garnered 4 of the top 5 economy hotel spots in the 2017 J.D. Power Guest Satisfaction Index, a clear indication that our quality initiatives are yielding results. We introduced the trademark Hotel Collection, a soft brand concept for owners of 3- and 4-star independent hotels. We also completed an important acquisition of Americlnn, our 20th brand. Americlnn has 200 franchise hotels and nearly 12,000 rooms, along with strong quality scores and consistent high guest satisfaction ratings. This tuck-in acquisition strengthens our presence in the attractive midscale space and we're excited to be -- to soon be offering benefits of our Wyndham Rewards program to Americlnn franchisees and guests. Our teams have made incredible progress over the past 2 years establishing Wyndham Rewards as one of the world-leading and most generous loyalty programs and growing its base to nearly 55 million enrolled members. In 2017, we made Wyndham Rewards points redemption available at close to 100 Wyndham Vacation Ownership properties, creating new marketing opportunities between the 2 businesses. Looking ahead, we're eager to expand our award-winning rewards program even further by welcoming the 13 million enrolled members of the La Quinta Returns loyalty program into the family once the acquisition occurs. At Wyndham Destination Network, we made important strategic progress as well. Our RCI timeshare exchange business significantly expanded its reach into new membership models with the successful acquisitions of DAE, a global direct-to-consumer exchange company and Love Home Swap, one of the world's largest home exchange programs. RCI continued to enhance its membership capabilities with the introduction of the new RCI Gold membership tier and expanded its developer network, both in the United States and in key growth markets, such as Vietnam, Japan and China. I want to take a moment to acknowledge Gail Mandel and the WDN headquarters team, along with our European Vacation Rental teams who continued to deliver for guests and shareholders throughout the strategic review process. I've been continually impressed, but not surprised, by their unwavering dedication and hard work, which exemplifies our count-on-me culture. In our Vacation Ownership segment, we hired Mike Brown in April and he quickly took the reins. We made great progress toward our goal of bringing in new owners, growing sales to new owners 15%. We remain the undisputed leader in selling Vacation Ownership with over $2 billion in gross VOI sales in 2017. We strengthened our business through our industry-leading marketing alliances and through tighter integration with the Wyndham Hotel Group. For example, in the fourth quarter, we saw continued momentum with Blue Thread call transfer leads and package sales, which increased 83% from the same time last year. That's after a 48% year-over-year increase in the third quarter. New owners accounted for 36% of our sales volume in 2017, and we're on a path to increase that to 45% over the next 5 years without losing any of our focus on our high-margin upgrade sales. We also launched a number of owner initiatives to ensure we're continually innovating to fulfill their lifetime vacation goals. For example, we launched new technology that facilitates online owner bookings, while enhancing yield management, and we have deepened our owner engagement initiatives. Our owner base, which is more than double the size of any other timeshare company, is a powerful asset, driving future VOI sales, property management and financing revenues. As you can see, we've accomplished a lot over the last year. Looking ahead as we continue to move toward our separation into 2 independent public companies, I'm excited that both companies will begin this next chapter with significant competitive advantages, proven best-in-class management teams and clear paths to superior value creation. With that, I'd like to turn the call over to David.
Thanks, Steve, and good morning, everyone. Today, I'd like to discuss our fourth quarter and full year results, the impact of recently enacted corporate tax reform on us and our outlook for 2018. My comments will be primarily focused on our adjusted results, and you can find our complete results in our earnings release, including reconciliations of adjusted amounts to GAAP numbers and breakdowns of our total results between continuing and discontinued operations. As Steve mentioned, our fourth quarter results exceeded our expectations. As expected and discussed on our last call, results for the quarter were negatively impacted by the 3 major hurricanes in the third quarter, which we estimate reduced fourth quarter revenues by $15 million, adjusted EBITDA by $16 million, net income by $10 million and adjusted EPS by $0.10. Nonetheless, our total revenues grew 4% in the fourth quarter, reflecting favorable results across our businesses, partially offset by the impact of the storms. Adjusted EBITDA increased 5%, primarily reflecting the revenue growth. Importantly, if you exclude hurricane effects, in Q4, our revenues grew 6%, our adjusted EBITDA grew 10% and our adjusted EPS from continuing operations grew 17%. We realize that the need to classify our European Vacation Rentals business as a discontinued operation and the effects of tax reform make our 2017 results harder to understand. And we are acutely aware that the significant acquisition of La Quinta, our own separation and the new revenue recognition standard taking effect this year won't make things any easier to understand in 2018. We're committed to doing what we can to communicate the impacts of these various changes as clearly as possible. Turning to our business units. Revenue in our Hotel Group segment grew 5% year-over-year in the fourth quarter. Adjusted EBITDA increased 3%. The recent hurricanes reduced revenues and EBITDA by $1 million and $4 million, respectively, meaning that adjusted EBITDA growth would have been 7% without the storms. Our results reflected growth in our core royalty and franchisee streams and growth in ancillary revenues due to the Wyndham Rewards credit card program. Domestic RevPAR increased 4.5% in the quarter, which compared with the industry at 4.2% and was driven by particularly strong performance at our economy brands. Performance in Florida and Texas benefited modestly from weather-related demand. International RevPAR increased 5.5% in constant currency, reflecting strong performance in a number of areas, including Canada, Germany, Turkey and Argentina. Net system size was up 4% year-over-year, primarily reflecting organic growth in addition to the acquisition of Americlnn. Our global pipeline grew 7% year-over-year, including a 15% increase in our U.S. pipeline with domestic new construction rooms up over 20%, evidence that our brand initiatives and new prototypes are resonating with hotel developers. In our Destination Network segment, which now excludes the European Vacation Rentals business, revenues grew 5% and adjusted EBITDA increased 23% or $9 million. Results benefited from higher pricing in our RCI business where exchange revenue per member increased 7%. Adjusted EBITDA also benefited from expense reduction initiatives. In our Vacation Ownership segment, revenues grew 4% and adjusted EBITDA increased 5%. The hurricanes reduced revenues and EBITDA by an estimated $13 million and $11 million, respectively, meaning that revenue and adjusted EBITDA growth would have otherwise been 6% and 10%, respectively, to a growth with 7% and 13% excluding hurricane effects.
Consumer financing revenues in our Vacation Ownership segment, were up 6% to $120 million in the quarter. Our gross receivables portfolio grew 6% year-over-year to $3.6 billion, largely as a result of our sales growth. Our provision for loan losses was up $15 million year-over-year to $101 million as expected. Defaults increased $10 million to $94 million. Third-party induced defaults were consistent with third quarter levels, but still up year-over-year. We think our Wyndham Cares customer outreach initiative and other efforts are helping us address the industry-wide issue of third-party induced defaults, but we still have more work to do to turn the tide and we're well aware that being the largest player in the industry with the largest owner base mathematically makes us a large target.
In our Corporate and Other segment, Q4 expenses were up $6 million year-over-year due to higher variable compensation costs. We recorded approximately $106 million in noncash impairment charges in the quarter. They were primarily related to a write-down of Vacation Ownership inventory in the Caribbean as a result of the hurricanes and secondarily tied to certain guarantee and intangible assets in our Hotel Group. I should note that one of the Hotel Group assets we wrote down was for Dolce Property Management contracts. Accounting rules required us to write down this specific asset, even though the Dolce acquisition as a whole currently pencils out as us having paid only 8x its 2017 EBITDA contribution. Looking at the full year, our 2017 results were robust. In our Hotel Group, rooms grew 4% year-over-year, including Americlnn and 3% excluding the acquisition, and RevPAR rose 3%, both domestically and globally. In Vacation Ownership, tour volume grew 6% despite hurricane effects and VPG was up 1%. Sales to new owners, as Steve noted, rose 15%, reflecting our strategic focus on this customer segment. Adjusted EBITDA from total operations was $1,397,000,000 and adjusted EBITDA from continuing operations grew 6%, excluding headwinds from the hurricanes and higher variable compensation expense. Adjusted diluted EPS from total operations was $6.16, a 7% year-over-year increase or 10% when excluding the 3-point negative impact from hurricanes. We generated $799 million of total free cash flow in 2017 compared with $782 million a year earlier. The year-over-year increase primarily reflects higher net income. The absolute level of free cash flow was higher than we had anticipated in October, and we deployed more than $840 million of cash for share repurchases and dividends in 2017. In addition, we used over $190 million of capital for acquisitions including the purchase of Americlnn in early October. All in all, we think it was a darn good year.
Turning to tax reform. The recently enacted Tax Cuts and Jobs Act is good news for us. In the fourth quarter, we recorded a $415 million noncash tax benefit as we reduced our net deferred tax liability because of the new lower federal rate. Even more importantly, we expect that our effective tax rate applicable to adjusted pretax earnings will be approximately 25% going forward, about 12 points below where it was previously. And over time, our cash tax rate will be around 19% instead of 30% previously. This will enhance our free cash flow by around $100 million a year. Over time, we expect that tax reform will allow us to invest more in our business and to have more cash flow available to return to shareholders. With a solid 2017 behind us, we're enthusiastic about our prospects as we start 2018. Our projections for the year exclude our European Vacation Rentals business, which is now a discontinued operation, and exclude the not yet closed La Quinta acquisition and are presented based on our historical revenue recognition accounting and recent exchange rates. We have taken this approach in an attempt to make our guidance as comparable to our adjusted 2017 results as possible, as well as because we don't yet know exactly when the La Quinta acquisition will close. Also for the sake of comparisons, we have provided full year projections for Wyndham Worldwide and its segments today without giving effect to our planned spin-off.
We plan to bridge today's projections to projections for our SpinCo and our RemainCo after we make the Hotel Group's Form 10 available next month. So as I said, we're enthusiastic about 2018. Our projections for the year are laid out on Table 12 of our earnings release. We expect revenues to grow 4% to 6% this year. We expect our adjusted EBITDA to grow in line with our long-term objective of 6% to 8% to $1,330,000,000 to $1,355,000,000. Because the third quarter 2017 hurricanes will continue to affect our results in 2018, the year-over-year effect of the 2017 hurricanes is minimal in 2018. Importantly, we expect our EBITDA growth will be driven by revenue and earnings growth in each of our operating segments. Our projections at their midpoints call for EBITDA growth of 8% in our Hotel Group, 3% in our Destination Network, 7% in Vacation Ownership and 7% overall. We expect adjusted diluted earnings per share from continuing operations of $6.90 to $7.05, an increase of 25% to 28%. This is based on a diluted share count of 101.7 million shares, which per our standard practice, assumes no share buybacks in 2018 even though we do plan to repurchase stock this year. Even without the benefit of tax reform, our adjusted EPS growth would be 7% to 9%. In our Hotel Group segment, we expect room growth of 2% to 4%, and we project global RevPAR to be up 2% to 3%, which we believe is consistent with industry forecast. We expect Hotel Group adjusted EBITDA will be $445 million to $455 million versus $416 million in 2017. At Destination Network, which is now comprised of our Vacation Exchange and North American Vacation Rental businesses, we expect revenues to grow 3% to 6% and adjusted EBITDA to be $265 million to $275 million, an increase of 1% to 5%. We expect the average number of exchange members and exchange revenue per member both to increase 1% to 3%. In Vacation Ownership, we expect revenue growth of 5% to 7% and adjusted EBITDA growth of 6% to 8% to $735 million to $750 million. Our key top line metric, gross VOI sales, is expected to grow 7% to 9%, reflecting overall tour growth of 5% to 7% and faster growth in new owner tours. We expect VPG to be up 1% to 3%. Our timeshare guidance assumes that our loan-loss provision rate continues to be around 20% of sales -- sorry, 20% of sales reflecting anticipated higher financing levels and no significant increase or decrease in pressure from third-party-related defaults. The attractive cash flow characteristics of our business remain the same, and we should have a roughly $100 million cash flow benefit from tax reform. With that being said, our cash flows will also be impacted by the La Quinta acquisition, coupled with transaction costs, separation costs, insurance recoveries, hurricane-related capital expenditures and potentially the disposition of our European Vacation Rentals business. Absent all of this noise and any timing differences, the growth in our earnings and the favorable effects of tax reform would take the roughly $800 million of annual free cash flow that we've been generating to somewhere between $900 million and $1 billion. As you think about our full year earnings, you should expect La Quinta to contribute about $8 million of EBITDA a month when we first acquire it, subject to some seasonality, growing to around $13 million a month by late 2019 as the business is fully integrated. Our 2018 outlook calls for adjusted EBITDA from continuing operations of $263 million to $268 million in the first quarter. This represents a 5% year-over-year increase at the midpoint. As you build out quarterly models, please remember that the September 2017 hurricanes are still a drag on earnings right now, but that -- they should help our fourth quarter comparisons. The seasonality of our VOI sales will also impact the loan-loss provision we report as a percentage of sales in Q1, which will be a few points higher than what we expect for the year as a whole. Generally speaking, in 2018, we expect to continue the growth we were delivering in 2017 and for the effects of the hurricanes to dissipate as we move through the year. I want to reiterate that we're enthusiastic about our businesses and prospects as we start 2018.
And with that, I'll turn the call back to Steve.
Thanks, David. So as I said earlier, it has been a busy time for us. Our board and our senior leadership team are particularly pleased and impressed that our entire organization has continued to deliver robust results during a period of significant change. And we are confident that the actions we are taking are positioning our businesses well for both near and long-term growth and success.
With that, David, Geoff, Mike and I will be pleased to take your questions. Erika?
[Operator Instructions] And we'll go first to the line of Joe Greff from JPMorgan.
Looking at your 2018 guidance, David, you may have mentioned this, but how much contribution are you baking in for Americlnn in 2018?
Americlnn is going to contribute about $11 million or $12 million incremental year-over-year.
Got it. And what was the contribution in the 4Q?
It was minimal. It was $1 million or $2 million.
Great. And Steve, you mentioned in your earlier remarks about the new owners as a percentage of the total migrating up to 45%, can you share with us what your goals are for 2018?
I'll let Mike take that one.
In [indiscernible] in 2016, we had 67% of our sales being owners and 33% of new owners that means, as David mentioned, it is down to -- it increased 300 basis points to 64% owners, 36% new owners. As we look into next year, we want to move that about 200 basis points again, increasing our owner base another 200 basis points with a long-term goal of getting over 5 years to 55% owners and 45% new owners.
Great. And then one final question related to the spin and separation. How much cost do you have left in 2018 to affect it and what was the amount in the fourth quarter of '17? And that's it for me.
Go ahead.
The separation-related costs so far have been in the $50 million range, and we continue to expect that overall separation cost will be around $300 million, some portion of which, a minority of which, will be noncash.
And the cash portion in 2018 would be roughly in what range?
Almost all of the expenses in the fourth quarter were cash expenses.
We'll go next to the line of Stephen Grambling from Goldman Sachs.
You talked to the benefit of the split and how that can drive some future consolidation. You've already had a very quick start in the Hotel Group. I'm wondering if you could talk to how you would think through consolidation going forward? Is this kind of the end of it? Is there still opportunities in the Hotel Group? And then also, as you think about timeshare, is there opportunity for consolidation there? And I know you've had some comments on scale in the past. What are your latest thoughts on what potential synergies you could think through in terms of consolidation in timeshare?
Well, that one touches all of us. So I'll start off just by saying that one of our goals as we establish these companies as stand-alone businesses is that they will have the capacity to be acquisitive. We think that's important to fuel shareholder value and growth. But Geoff, I'll turn it over to you for the hotel part of the question.
Sure, Steve. We're looking absolutely at every deal that presents itself and we'll continue to do it. But I think what we're most excited about is our organic growth, particularly in North America. We saw our North American pipeline grow 15% and what it really excites us in terms of the organic side of that growth is we're growing in the areas of the market right now that we're looking to grow in. Obviously, with acquisitions like Americlnn and La Quinta, but with our prototype midscale brands that saw the greatest growth in their pipeline, our Hawthorn brand on the extended-stay side, our Wingate on the midscale side and our Trademark brand, which as Steve was talking earlier, has added 5,000 rooms to the pipeline and is now at 70 hotels. We see great opportunity for both organic and acquisition opportunities as they present themselves.
As it relates to the Vacation Ownership side, the last 5 years has definitely shown that the industry itself has favored the hospitality brands and, I think, consolidation will be possible as we move forward. With that said and being in my role for less than a year, our primary focus is our core strategic focus going forward, which is really around many of the things that Steve has mentioned around new owner growth and the Blue Thread. With that said -- and the free cash flow model that we'd expect post-spin, we will be more naturally acquisitive, but we will only be looking at deals that are strategic fits for us and, obviously, financially accretive going forward. We won't be looking for an acquisition simply for the sake of acquisition.
That's all helpful color. Maybe one follow-up. You just mentioned the benefits of tax reform and this is maybe a question for all of you, but the benefits, the cash benefits of tax reform, which aren't really going to be impacting EBITDA change, how you think about potential leverage target ratios and capital deployment in each of the businesses?
Would you take that, David?
Yes. I think the point you make is a good one that clearly, more of our EBITDA will be flowing through to cash flow and to net income as a lower tax rate. So it does give us a little bit more room, but I don't think it changes a lot, the way we'll approach leverage, what it does really create is an opportunity, as I mentioned, to invest more in our business over time, and the La Quinta acquisition is an example of that and to return cash to shareholders in the form of dividends and share repurchases.
And we'll go next to the line of Patrick Scholes from SunTrust.
I want to first drill down a little bit on the strong performance in the exchange of -- in the RCI and the revenue per member, it looks like 7% was one of the strongest growth rates we've seen in quite some time. I wonder if you can give a little bit more color on that. You did note that driven by higher pricing, but specifically, was this a price hike on the membership or the exchange portion?
Well, we -- I'll start off and Mike can jump in. There was price increase, I believe it was both on membership and on transaction. And that's usual for us. That's normal. Bear in mind, the fourth quarter is not a big quarter so beats are a little bit more pronounced than they are in our larger quarters. But it was a great quarter for RCI and they continue to innovate and find ways to drive that kind of shared wallet that they can get from members higher and higher. Do you have anything else, Mike?
No, no.
That's right, Steve. So I look at the increases as representing both the price increase that we put through as well as driving customers, driving members there to higher value-added products that helps increase our revenues per member.
Okay. And then my second question concerning the third-party defaults. You noted in the remarks that it assumes no change -- your guidance assumes no changes in third-party default issues. I wonder if you could just touch a little more color. Do you see the defaults sort of have reached sort of their peak level and now it's lessening or it's sort of a steady state, not getting worse, but not getting better at this point?
Patrick, this is Mike. Because it's the first time I spoke about this subject on a call, I'll take a little bit more time on this because I think it's such an important issue. Because I was certainly aware when I joined Wyndham of the third-party default issue, but what caught me by surprise when I joined was many of the tactics and, in some cases, misinformation that was being shared with our member base. And in addressing the issue, we've really consolidated our strategy and got back to what we believe is absolutely critical to be successful in the issue. And in the end, this industry provides a tremendous product which puts people on vacation -- and great vacations. And that's what our strategy going forward is, is we want to deliver our great vacations to our owner base. And more importantly, we want to own the relationship with our nearly 900,000 members. And many of the third-party companies have intercepted that relationship in a variety of different ways, and we've launched a number of different programs to really gain and own the relationship, direct communication in whatever media form that's out there, whether it'd be by phone, face to face, the digital landscape or on the web, it is our mission to own not only every contact, but to deliver our owner's wish list of great vacations. In that respect, we did see some positive trends as a result of our campaign and since September of last year, as David mentioned in the remarks, there is year-on-year growth, but we're seeing the year-on-year growth slow. And I would attribute that to what Wyndham has always done well in this industry, it's innovate. And you're well aware of the Ovation program, but we launched Wyndham Cares in the fourth quarter of last year, which is really there to give consumers an outlet, not only when they are looking to exit their product, but when they need to know more about their ownership and in many cases, just look at properties that they're looking to vacation. As an example, just yesterday, we had 100 phone calls to Wyndham Cares of people that were inquiring about exiting their ownership. That's a great progress and great contact that we're beginning to develop and grow our one-to-one relationships. So we think we have very positive trends. Our owners love our -- their ownership and I think, in the long run, we'll see that trend really help us in the third-party default issue.
[Operator Instructions] We'll take our next question from Jared Shojajan from Wolfe Research.
Just a question on rising interest rates. I think in the past, you've called out an $8 million impact to EBITDA from a 100 basis point change in interest rates. Is that still accurate? And does your current guidance take into account current interest rates?
Yes, I think that is about right. We would see that sort of impact on EBITDA and there would be a similar or $10 million-ish impact on below the line interest expense associated with a 100-basis point move in rates. Our -- we build our forecast based on the forward curve and so, yes, it does reflect current rate expectations, which, I guess, we all think might be moving around a little bit today, but they're based on where the forward curve was.
Okay. And then just switching gears here on the La Quinta acquisition, you're obviously going to have to lever up some. Can you just help us understand the debt structure, the new entities and if you can't answer that, maybe you can just help us understand your longer-term targeted leverage ranges for both timeshare and hotel.
Yes. We're not quite ready to tackle either of those pieces yet, but what we will be working through is the allocation of the aggregate amount of debt between the 2 companies. We ended the fourth quarter with around $3.7 billion of debt and we'll be adding $2 billion -- $3.7 billion of net debt, and we will be adding about $2 billion for the La Quinta acquisition. If we end up with the disposition of our European Vacation Rentals business, that would reduce the amount of net debt that we need to allocate between the 2 businesses by a fair amount. And from there, what we'll be looking to do is for each business to pick up an amount of debt that obviously adds up to the total, but also provides each business with acquisition capacity and capability going forward. So we're going to be going through that exercise with an approach of putting in place capital structures that are not only appropriate for each of the businesses, but gives each of them an opportunity to pursue tuck-in acquisitions and consolidation in their respective businesses.
Okay, great. And if I could just ask one more follow-up just on the loan-loss provision. I think you said 20% of sales for 2018 was the target. You came in a little bit below that for the fourth quarter. So can you just help me think about how we go from, I think, it was a little under 19% this quarter to back to 20% for 2018?
There can be -- because we report that as a percentage of sales, there's a little bit of seasonality in the numerator and there's seasonality in the denominator as well. So I think it's better to look at that on a full year basis or to look at it as us keeping the reserving, the allowance against the debt that we have pretty consistent over time. So there's a little bit of noise just in a percentage of sales-based calculation from quarter-to-quarter and I really view what we're forecasting as being fairly consistent with where we've been running.
[Operator Instructions] We'll go next to the line of David Hargreaves from Stifel.
Just trying to think things through conservatively. If we're looking at the RemainCo structure, I think originally, you had indicated an intention to raise some debt at the spin-off piece and then spend some of that back so that RemainCo could be delevered a bit. But with La Quinta, if we're trying to think about it conservatively maybe there isn't a lot that you could send back. I'm just wondering, if that's still your intention with that acquisition or if we should be thinking maybe RemainCo could be a 3.5x levered business. It's not a terrible thing, by the way, and the results certainly show that it could sustain that. But I'm just wondering if that's an unreasonable hypothesis that we should be thinking through.
It's David. I appreciate the creativity to try to get us to answer this question a little bit sooner than we're planning on. We are continuing to work through it. I think the nature of both businesses is that they have a stability and a predictability to them that will allow them to -- that would allow each of them to have a fair amount of debt and do it -- and by doing so, to optimize the capital structure. As we look at some of the scenarios for how we allocate the capital, I think, we feel good about the ability of the businesses to absorb the amount of debt that needs to be allocated, but we're just not ready. We don't think it's appropriate to discuss that at this point in time, but we will have more to say about it, I think, in the relatively near future.
That's fair. Could you speak to your level of confidence in closing in the second quarter as some of the milestones appeared to have slipped a little bit?
Closing the second quarter on the spin. Is that what the question is?
Yes.
Okay. Yes. I mean, we're relatively confident, we need an IRS ruling. We've got to file the final Form 10, but there's nothing really standing in the way of us getting this done in the second quarter. We'd ideally would love to have the European Rental and the La Quinta acquisition both done as of that time, but -- that's -- it's planned right now, and we feel good about it, but there's no certainty in the world and things can change, but we're basically -- we're on our plan, well on our plan.
And at this time, we have no further questions so I'd like to turn it back over to our speakers for any closing comments.
Well, thank you, all very much for joining us, and we look forward to talking to you in April.
Thank you. I'd like to thank everybody for their participation. Please feel free to disconnect at any time.